Prospects for UK Buy to Let Sector
Submit Articles Back to Articles
For the past 3 years some commentators have been predicting the imminent
collapse of the Buy to let sector. House prices are rising faster than both
average earnings and now rents. The economic fundamentals behind the strength of
the sector are starting to decline. However despite concerns there are some
reasons to be optimistic
Strengths of Buy to Let Sector.
Mortgage defaults are lower in the But to Let sector than other areas of the
Housing market. The proportion of buy to let mortgages 3 months in arrears is
only 0.59% lower than 2006 and lower than the average for the UK housing Market
Continued shortage of housing is pushing up prices of renting. Not by as much
as house prices, but the strong demand for the rented sector means that the
amount of time when the house is not occupied is much less.
Foreign workers continue to move into the UK from the EU. This is another
factor strengthening the renting sector of the housing market.
Relatively low real interest rates (real interest rates = nominal interest
rates – inflation. It is a more accurate guide to the real cost of borrowing).
Despite 3 rises in interest rates in the past 6 months real interest rates are
still quite low, especially if the old RPI measure is used for measuring
Weakness of Buy to Let Mortgage Sector
Rental yields are falling because of the rampant house prices inflation.
Banks are making it easier to get a buy to let mortgage through relaxing the
rental yield returns. Alliance & Leicester for example require only rental
yields of 100% for some buy to let (traditional return is 130%). This makes an
increasing number of buy to let mortgage susceptible to a rise in interest
Interest rates in the UK are still predicted to keep rising because of the
underlying strength of the consumer sector and consequent inflationary
New licensing regime for renting. This makes landlords hand over tenant
deposits to government 3rd parties. There are also more restrictions on the
quality of the rented sector.
About the Author
Richard Pettinger studied Politics and Economics at Lady Margaret Hall,
Oxford University. He now works as an economics teacher in Oxford. He enjoys
writing essays on Economic and he edits an Economics Blog focused on UK and US
Follow us @Scopulus_News
Article Published/Sorted/Amended on Scopulus 2007-04-07 15:18:20 in Business Articles